Berkeley Share Discussion Threads

[silverfern] 07/10/2015 12:15

good buying opp today imho

[r ball] 21/9/2015 21:00

cheap cf. peers.

[arcadian] 21/9/2015 20:45

I think that is a fair rejoinder especially if one considers the significance of the quantity sold by a "Director"; it was my personal response based on personal experience. The company is excellent with an impeccable record and great ratios and fundamentals.

[r ball] 21/9/2015 19:47

not significant. Wait until May 2016 to sell.

[dr_smith] 21/9/2015 19:39

FWIW It was spouse selling circa 4% of couples holding, so see it as wife probably selling for one or more of following reasons:
i) buy house/other high value asset
ii) re-invest/maintain portfolio spread in common sense way
iii) To realise a gain or for some other tax related purpose.

I concluded as it is spouse and small percentage of D's interested holding, there was no reason to think it was any form of cashing in, so unconcerned as a holder for this isolated sale.

Maybe Mrs Pidgeley reads this board and will now be spending the dosh on BWY in response to Arcadians' signal. ;-)

All IMO DYOR :-)

[arcadian] 21/9/2015 18:53

Well I sold mine today after lunch.

Large "Director" sells never bode well but I could be wrong and have been many times although looking back I should have sold when Todd sold.

PS I did use some of the funds to add to my holding of Bellway which I expect to produce excellent figures in a couple of weeks.

[dr_smith] 09/9/2015 14:16

Yippee - yes can agree to that risk.
IMO New houses differ to other forms of cyclical supply and demand, as even in an economy downturn, there is need for more houses, so whilst that is the case, (atleast the next few years) house builders can manage profitably, regardless of whether land/housing prices/interest rates go up or down. These factors provide headwinds, but so long as we need more houses, there is profit to be made.

Having said that share price is about market expectations rather than value and if general consensus is poor even a go getting co making great profits can have its share price nose dive, in the short term (< 1 year) so sometimes need to batten down the hatches and be patient to let co earnings speak for themselves and overcome short term pessimism.

[rcturner2] 09/9/2015 13:59

Housebuilders don't generally buy land with planning permission. Why is that? The reason is that their profit comes from getting planning permission on land without planning permission, there is no actual profit in the house building, which is simply the means by which they realise their gain in the land value.

[sogoesit] 09/9/2015 13:49

I think the downside risk will be the change in demand, at least in the South East.
What will drive that?
Interest rates; Exiting the EU leading to business outflow from London; Change in government and government policy....
Barrett reported today and still sees high demand levels.
Exiting the EU we will get a view on later next year.
Change in government gives us 5 years although the view that the BtL industry is "unfair" may lead to a softening in prices as a result of the partial loss of tax breaks on debt.

[rcturner2] 09/9/2015 12:38

DR S, I'm not offended by bulletin board posts, no worries.

I have been investing in house builders for over 20 years. BKG was a beauty for me, £25 to £35 in 6 months.

However I have also seen the other side of the coin.

The original question on this thread was "where is the possible downside?" and I was trying to answer that question. My answer is that unless you see them as asset companies sitting on land you run the risk of mistaking them for a service company such as Vodafone. Housing is cyclical and things change very fast. What happens if we leave the EU for example? House builders are at pretty high ratings now, relative to NAV, and that is a risk.

[dr_smith] 09/9/2015 12:20

RC
The 'expert' says:
"Persimmon currently trades on a 2015 prospective PNAV of 1.98x a deserved premium to the sector, given its strong balance sheet, cash return programme and sector leading land holdings. With the stock already trading on a premium rating, we believe the share price is up with events for now. We therefore maintain our Hold recommendation."
Price at 7/1/15 report date £15.41
Price now £21.07 a 36% increase.

So much for the expert 'hold' opinion!!!!

"If land values halve, trust me housebuilder share prices will halve too."
Another strapline without substantiating.

If land prices halve, that would take places over time, not overnight and can be managed.

I am a PI as I don't trust pro investors and I certainly don't trust someone on a web forum. Don't be offended, I don't even trust myself, but happy to lose money on my own calls, based on own research, rather than others.

We have differing views, so lets leave it at that. :-)

[rcturner2] 09/9/2015 11:33

If land values halve, trust me housebuilder share prices will halve too.

[dr_smith] 09/9/2015 11:01

RC "house builders are really just a play on land prices"
This is Contrary to my own opinion :-)

NAV IMO Not used to calculate earning potential/share price increase but represents fall back position if sh*t hits fan and liquidator appointed.

The infrastucture, skills and logistics have a value which isn't seen on a balance sheet (except as goodwill following a takeover).

Whether they build on their own land or that of others, they will charge a markup and be in a profit making business.
Householders rarely build their own homes, despite recent initiatives, so as long as homes are required, there will be demand for builders.

[rcturner2] 09/9/2015 10:36

The value in the chain is created by the planning permission and the building of the house on the approved land allows them to realise that value.

This is not a contrarian view, this is a standard view of their business model.

[rcturner2] 09/9/2015 10:34

Hi DrS, I have to be honest I didn't really follow any of your points!

The JV is a good example and NG are clearly bringing the land to the table that is why it is a JV.

The reason why house builders always look such good value is that PIs value them on eps and dividends whereas the city values them as asset companies based on their land bank as NAV.

[sogoesit] 09/9/2015 10:28

Yep, right on, that's the market... all about perception!

The St William JV with National Grid is a venture where BKG owns no land, apparently!

[dr_smith] 09/9/2015 10:24

In between buying and selling they develop and construct with 20% profit.
I have given examples, but you have not responded to them and wish to take a contrarian view without substantiating it.
I do not agree with you and do not think further dialogue will change either of our minds, but that makes the market what it is, so is to be expected. :-)

[chinese investor] 09/9/2015 08:06

The Share That Loves To Give !

[rcturner2] 09/9/2015 07:26

Somewhere I do have a very good article explaining the business model of house builders, unfortunately I can't find it.

They buy land without a house, put a house on it and then sell it again. What do you think a housebuilder that had no land be worth? Nothing.

Their entire business model is an asset business which is the buying and selling of land. If they couldn't get land they would be out of business tomorrow.

They are not a service business.

[sogoesit] 08/9/2015 22:53

Discuss? Here goes ;-)
It depends what it does with its cash:
- If it "hoards" it and keeps the retained earnings as cash the return would be less than its cost of capital so it's better to distribute it to the likes of you and me who can possibly do better things with it. Hoarding cash wouldn't enhance value.
- if it is constrained in spending cash, as you imply, this may be due to having insufficient resources (land, human skills etc) or having insufficient dynamics to turn-over land thru to property sales due to planning constraints resulting in cash being hoarded... see above.
- if it bought more land, for development, in excess of what it can reasonably turn-over efficiently this might be value destructive if the returns on land were less than its, core (building homes), business's cost of capital.

To answer your question: No, I think the share price would be lower... Unless someone saw all the cash doing nothing and decided to go after it!! By distributing its economic surplus cash the yield will be driven to the risk adjusted amount the market awards it.

These folks, post the 2008 financial crisis, are pretty cautious now with debt, and rightly so in my view, after they got caught out using a lot of debt to try to "run too fast" when the banks were spreading our savings wildly round!

[r ball] 08/9/2015 19:29

would the share price (dividend adjusted) be higher without the dividends/capital return? discuss.I don't think so as bkg cannot spend cash fast enough.

[sogoesit] 08/9/2015 18:18

Indeed, DrSmith, Housing construction is a service industry not an asset (property) holding industry. If it were an asset driven industry it would hold land inventory (say like Workspace or any other REIT) for a longer time and retain its free holdings, which it doesn't in BKG's case, and accrue earnings from that asset.
Housing construction uses land to make profits in essence on the margin between the cost of construction and the sale of the constructed buildings (if it is in the right place at the right time there is, of course, a side-profit on the land-value, as a bonus).
It would be interesting to know what the land inventory turnover duration is for BKG but, in essence, it is probably only a short-term owner and a house-builder does not need to own any land!
But BKG is more of a developer than a builder, one could argue.

[dr_smith] 08/9/2015 16:40

RC
"The profit actually comes from the uptick in the land value."
The cream come from uptick. You imply no land price increase - no profit which is not true IME.
To add weight to my above example of my basis for counter opinion, share prices have gone up 50% in 8 months.
Your assertion would mean house/land prices have increased a like amount, which is blatantly untrue.

[rcturner2] 08/9/2015 16:04

Underneath the bonnet they are pretty much the same, I know it seems counter intuitive.

They buy land and sell the land with the house on it. The profit actually comes from the uptick in the land value.